
Teutonic ambitions
Another week, another Chinese strategic acquisition of a German manufacturing asset. The most recent case involves Fusheng Industrial, Greater China's leading producer of industrial air compressors, buying its German rival ALMiG Kompresssoren.
Fusheng's rationale is simple enough: The global compressor market is expected to grow 5% over the next five years thanks to the introduction of more efficient and cleaner technologies. Not only does ALMiG present the Taiwan-headquartered manufacturer with a readymade footprint in Europe, North America and Asia, but it also represents a shortcut to specialization. ALMiG has a particular expertise in energy-efficient and oil-free industrial air compressors.
This is the thesis of Chinese outbound investment in a nutshell, at least in recent years. In the vast majority of cases, acquisitions are not iconic; they are small strategic steps intended to open up new markets and fill in technological voids. Chinese manufacturers can do scale. Now they are climbing the value chain, inorganically.
It rings true of Weichai Power's $922 million investment in Kion, a forklift truck manufacturer with a significant market share in Europe and China - Weichai is especially interested in Kion's hydraulics business; and of Sany Heavy Industry's $475.9 million acquisition of Putzmeister, where both companies are in the high-tech concrete pumps business; and even of the purported $908 billion purchase of plastics specialist KraussMaffei Technologies by an unnamed Chinese machinery group.
These particular deals show up on the AVCJ radar because private equity firms' hands are all over them. Oaktree Capital Management backed a management-led privatization of Fusheng in 2007; the Putzmeister deal was executed with assistance from CITIC Private Equity; Kion remains a portfolio company of KKR and Goldman Sachs; and KraussMaffei is owned by US-based Madison Capital.
There is clearly a role for private equity to play in bringing investors and investees together, although the aforementioned transactions indicate just how wide-ranging this role can be. For its part, Sino-European PE firm Mandarin Capital Partners plans to devote a considerable amount of its second fund to manufacturing and services companies across China and German-speaking parts of Europe.
In a number of cases, Chinese participation breathes new life and new capital into struggling European businesses, wiping out debts and potentially opening up distribution channels to fast-growing industrial customers in China.
This presents another dimension to the private equity role, one that is increasingly being played by a number of China-focused GPs.
Unitas Capital's acquisition of hydraulic cylinders specialist Hyva Holdings is well known for being the instance in which a private equity firm used a high-yield bond to support a deal in Asia. But it also presented a model for several subsequent transactions involving European industrial companies.
Hyva is a Netherlands company that relies on Asia for 70% of its sales; Unitas reoriented it as an Asian company, relocating the majority of staff and operations to the region. Hyva has since expanded its product range in Asia beyond hydraulics to incorporate other equipment relevant to the fast-growing mining, infrastructure and environmental services sectors.
Unitas' portfolio now includes four industrial groups that were originally based outside of Asia but have a big presence in the region and are in the process of being globalized. Expect other GPs to add these capabilities to their investment strategies when looking at high-end German manufacturing assets.
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